Numbers with no narrative :-(
19 July 2018
I always stress the need for numbers in any of our reports at PEM Corporate Finance to have some narrative, some thought, some insight to go with them. Otherwise one might conclude anything or nothing from them.
So I was interested to read a rather doom laden article in today's Insider email newsletter. "East of England Deal Market Declines - Experian". This is reporting on Experian's H1 2018 figures for deal doing activity nationally and around the country by region. For the East of England it went on to report that "the value of deals struck in the East of England in the first has 2018 suffered a steep drop, according to new data released by Experian" "Values fell significantly by 75% to £3.5Bn from the £14.1Bn announced 12 months ago."
Now on the face of it that's true, and pretty much lifted from the Experian report. What it doesn't do is ask why. This drop is compared to the same period last year. So a quick look at the Experian report for H1 2017 shows that the 2017 period included two huge deals, the sale of a stake in Arm Holdings plc to Vision Fund Japan for £6.41Bn and Tesco's acquisition of Booker Group plc for £3.7Bn. So the two largest deals in 2017 were together worth £10.11Bn. In H1 of 2018 the two largest deals were the sale of petrol station/convenience store group MRH GB for £1.2Bn and the sale of Northgate Public Services to a Japanese buyer for £0.475Bn, taken together there were worth £1.675Bn.
The trumpeted 75% decline in deal value between H1 2017 and H1 2018 came to £10.6Bn. In other words 80% of that decline was due to the two largest deals in 2017 being particularly big.
Can you conclude from this that the market is in decline? Don't think so.
However over the same period there was a 23% drop in the number of deals from 324 to 249. Given the drop by value is so skewed by those two big deals, this probably means a real slowing in volume of smaller deals. Harder to be sure why. This might be of more concern, although anecdotally we just don't see any slowing in activity with many companies seeking to transact, and sustained appetite from overseas buyers and financial players alike.
So you can put narrative on the value decline, but as regards the volume decline it's much more difficult to conclude as to why from this data.